January 2nd, 2024
securities
FINRA FINES FOUR FIRMS $2.6 MILLION FOR VIOLATIONS RELATING TO FULLY PAID SECURITIES LENDING

FINRA recently announced new sanctions filed against M1 Finance LLC, Open to the Public Investing, Inc., SoFi Securities LLC, and SogoTrade, Inc. for supervisory and advertising violations. The fines for these violations totaled $1.6 million. In addition to the substantial fine, FINRA also ordered the firms pay over $1 million in restitution.

During its investigation, FINRA found the firms failed to “establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to supervise their fully paid securities lending offerings.” While FINRA noted the firms contractually agreed with their clearing firm “to determine which of its customers were appropriate for participation in the fully paid securities lending program,” the four broker-dealer firms failed to establish any criteria for customer participation and further failed to take any steps to ensure the appropriateness of the customer participation prior to enrolling customers into the investment program. Most notably, FINRA concluded the four firms provided disclosure documentation that provided misleading statements in relation to the nature of compensation that the customers would receive in relation to their investment. FINRA found the customers did not receive any compensation.

FINRA Executive Vice President and Head of Enforcement advised “it is imperative that FINRA member firms offering fully paid securities lending programs exercise particular care in supervising them.” All four firms involved agreed to a consent order wherein they neither admitted or denied the charges against them. 

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